Weekly Market Report – 15.10.2018

Market Summary

Asia

Asian markets had a dismal week, and the fact that they managed to turn higher on Friday was promising, but did little to trim the massive weekly losses suffered across the region. Mainland China saw the worst performance, with the Shanghai Composite dropping 7.7% as it fell more than 5% on Thursday alone. Hong Kong’s Hang Seng rebounded nicely Friday, leaving it with a 2.8% weekly loss. In Japan the Nikkei lost 4.7% on the week, and South Korea’s Kospi matched that with its own 4.7% weekly loss. And rounding things out, the S&P/ASX 200 in Australia fell 4.8% as it struggled with a weak banking sector all week.

There’s some hope for the coming week as investors were able to pull it together at the end of the past week and post good gains on Friday. While bond yields remain at high levels, it looks as if they may have topped out for now, which will help equity markets stabilize. Of course trade issues remain, so even if markets in Asia stabilize, there could be some weak days, but hopefully those will be matched by stronger days as well.

Europe

European markets looked to finish a brutal week on a high note, but early gains on Friday evaporated and markets closed modestly lower for the day. On a weekly basis European markets performance was as bad as that seen in Asia. The broad based Stoxx Europe 600 finished the week with a 4.7% loss. In France, the CAC 40 fell 5.0%, but Germany’s DAX wasn’t far behind as it fell 4.9% for the week. The largest losses came from Italy though, where the FTSE MiB fell 5.4% for the week. British equities did slightly better, with the FTSE 100 losing 4.5% for the week.

The stabilization of markets on Friday was a positive sign, although it was none too encouraging to see markets give up large losses and end in negative territory. Overall however it looks as if investors are now resigned to higher bond yields and rising interest rates, so we should get better action in the coming week. That said, we could still see choppiness in the markets and the potential for sharp losses remains due to U.S.-China trade issues.

U.S.

U.S. markets were also hit hard by rising Treasury yields mid-week, and posted solid weekly losses, even though they managed to rebound on Friday as Treasury yields slid lower. For the week the Dow Industrials was the worst performing U.S. index, falling 4.5%. The S&P 500 had a loss of 4.1%, while the Nasdaq had the best performance as it lost 3.7%. Technology saw the best rebound off lows, which helped the Nasdaq.

The coming week will see the start of the third quarter earnings season, and that could be just what markets need after the sharp yield driven losses this past week. Banks will kicked off earnings season Friday, with Wells Fargo, JPMorgan Chase and Citigroup all reporting better than expected revenues and profits. Boots Walgreens Alliance also reported strong earnings on Friday. The coming week will feature results from Netflix, Schlumberger, IBM and more good results from these three on top of the strong bank results could turn things around rapidly.

Gold/Crude Oil

Gold posted a second weekly win, rising 1.4% in the past week as investors moved to the safe haven of the precious metal in response to the rout in equities. While gold fell Friday, it hit a two-month high on Thursday. The coming week is likely to see more muted action for gold as equity markets look to stabilize, but with two weekly wins we could be seeing gold making an advance to close out the year.

Crude markets suffered their first weekly loss in five weeks as the stock market rout had traders worried about the possibility of falling demand due to a slowing global economy. West Texas Intermediate crude, the U.S. benchmark, was down 4.0% for the week, while the global benchmark Brent crude fell 5.2% on a weekly basis. The coming week should be more positive for crude, as long as equities remain somewhat stable, and there are no panics over a slowing economy.

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